Tuesday, July 23, 2019

Las Vegas Housing: Rise, Fall and Rise – Again!

-- Intended for New College Graduates --

(Click on the image to enlarge)

Suman, a new graduate with co-concentrations in Econ and Anthropology, is interviewing for Market Strategist.  

Interviewer: Suman, this laptop has a spreadsheet comprising Case-Shiller's seasonally-adjusted Las Vegas housing data since 2000. The Q1-2019 data has been lumped with Q4-2018. Analyze the data and show us the pre and post recession trends. Though the time series is extended, try to keep the presentation as clean as possible.

The presentation begins...

Suman: First off, in order to keep the presentation clean and less noisy, I have rolled up the monthly data to the annualized level.  

Question # 1

Interviewer: So, what am I looking at? End of the year values?

Suman: No. These are all annual averages, thus defaulting to the mid-year. Since they are all calculated the same way, they are apples-to-apples.

Question # 2

Interviewer: First, explain to me the pre-recession growth in prices.

Suman: The pre-recession growth was meteoric, rising from 129.86 in 2003 to 233.21 in 2006, generating an astounding 80% growth in 3 short years.

Question # 3

Interviewer: What about the post-recession growth?

Suman: The post-recession growth has been steady and strong, rising from 117.84 in 2013 to 185.31 in 2018, yielding a solid 57% growth in 6 years. Of course, the pre-recession growth rates far exceeded the post-recession growth rates.

Question # 4

Interviewer: How would you describe the slopes of the two curves?

Suman: The pre-recession curve is backward-bending with an exponential slope, while the post is more like a normal linear slope. Of course, the 2018 has a slight tilt-back, but not exponential yet.

Question # 5

Interviewer: What would you attribute the 2018 tilt-back to?

Suman: I would attribute it to the falling interest rates. In other words, this market responded very positively to the falling interest rates in late 2018 through early 2019.

Question # 6

Interviewer: Does any part of the graph mimic any classic distribution curve?

Suman: Yes, the 2000 to 2012 stretch somewhat mimics the normal distribution curve.

Question # 7

Interviewer: 20-30 years from now, if you look back at this stretch, what do you expect to see?

Suman: I would expect that the peaks and troughs would be statistically moderated down. Most probably, above 175 or below 100 would be statistical outliers from this period.
Question # 8

Interviewer: As we know, the Las Vegas market is heavily influenced by foreign buying which has been tumbling. How come the recent growth remains so robust?

Suman: Like the Manhattan market, the Las Vegas (high-rise) condo market attracts many foreign buyers. In fact, there has been a huge growth of such high-rise condo buildings in and around the City Center in recent years. This dataset however does not reflect the condo segment of the residential market.     

Question # 9

Interviewer: Would you recommend this market to our clientele now?

Suman: Not right now. This is a very volatile market so the entry at the right inflection point of the business cycle is critical. Simply put, I would await a good pull-back.

Disclaimer - The author is not advocating the Case Shiller indices listed here. Consult your Financial Planner for an appropriate asset allocation model and/or trading strategies for different markets, including housing.

Thank you.

Sid Som, MBA, MIM
President, Homequant, Inc.

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